Journal of Finance and Investment Analysis, vol. 2, no.1, 2013, 23-39
ISSN: 2241-0998 (print version), 2241-0996(online)
Scienpress Ltd, 2013
Economic Evaluation of a Cruise Ship Dock Marine
Spyros E. Polykalas1 and Spyros Troumpetas2
Abstract
Cruise industry has increased in popularity all around the world, serving a heterogeneous
clientele with well-differentiated expectations and preferences mainly in Asian, European
and North American Markets. Greece as one of the most attractive tourism destinations is
ranked highly among the most popular cruise destinations in the Mediterranean, mainly
due to the country’s geophysical characteristics and the extensive island network. In this
paper a short overview of the cruise industry for world-wide and especially for
Mediterranean market is presented, while an economic evaluation of a cruise ship
mooring dock infrastructure is also performed. The main aim of this paper is to examine
the economy impact on both National and Local level, of the cruise ship mooring dock
located at the port of Argostoli in Kefalonia using a Discounted Cash Flows (DCF)
analysis. Using actual data provided by local port authorities, several scenarios are
examined in order to identify to most crucial parameters for a cruise ship mooring dock
economic evaluation.
JEL classification numbers: R42
Keywords: DCF evaluation, Economic Evaluation, Cruise Dock Mooring, Cruise
Tourism, Investment Analysis
1
Introduction
The concept of maritime tourism at an international level includes the total of tourist,
recreational and leisure activities which take place in the marine space of a country
receiving and offering hospitality to tourists [1]. This paper attempts to obtain a precise
evaluation of investment in mooring piers for cruise ships as a subset of maritime tourism
1
Assistant Professor, Dept. of Business Administration, TEI of Ionian Islands, Greece,
e-mail: s.polykalas@teiion.gr
2
Dept. of Business Administration, TEI of Ionian Islands, Greece,
e-mail: spytro@gmail.com
Article Info: Received : November 4, 2012. Revised : November 30, 2012.
Published online : February 10, 2013
24
Spyros E. Polykalas and Spyros Troumpetas
development.
A key component for the sustainability of tourism in general and especially of cruise
tourism in a regional area is the contribution of all members involved: contributing to
decision making in the development process and during the life cycle of the tourism
product is crucial in order to prolong the stage of regional development. In a tourist
destination area, those involved in tourism are local residents, tourists, businesses that
benefit directly or indirectly from tourism, the public sector (both national and local
level) and social groups involved (environmental organizations, etc.). Yet, the sector is
characterized by difficulties in the recording of statistical data for precise estimation of its
real size and the exact number of tourists that select any form of maritime tourism
remains unknown [22].
The cruise industry has experienced an increasing process of popularization, becoming a
major part of the tourism sector and reaching a level of enormous significance word-wide
as an economic factor and one of the most significant examples of globalization [2].
Many economies and ports all over the globe are turning their attention at cruise industry
as potential source of development and economic growth. Therefore, issues concerning
the impact of cruise tourism on local or national level constitute a significant field of
research.
The rest of this paper is organized as follows: Section II provides an overview of the
cruise shipping market on a world-wide scale, while section III restricts the geographical
overview to Mediterranean area. Sections IV and V present the Greek cruise industry
overview and the state of mooring facilities available. Section VI describes and expands
the model used to evaluate the mooring dock impact on the port of Argostoli.
2
Cruise Shipping Market Overview
On a global level, the cruise industry is relatively a “new” industry. Since 1980 it is
estimated that 100 million passengers have realized a cruise of at least two days duration.
61% of this total refers to passengers of the last decade and 37% refers to the last 5 years
[1].
According to Peisley [3] (2005), the cruise industry is considered to be the most rapidly
growing alternative tourism sector over the last two decades, with an annual rate of
growth around 8% in the past 20 years, against traditional tourism (4%). The North
American cruise industry alone generated 329,943 jobs that contributed a $15.2 billion
wage impact on the U.S. economy in 2010, a 5.1 percent increase in employment and a
7.0 percent rise in wages over 2009 [4]. The total cruise industry economic impact in the
U.S. in 2010 was $37.85 billion of gross output, a 7.8 percent increase over last year [5].
The total worldwide cruise industry for 2012 is estimated at $33.5 billion with 20.3
million annualized passengers carried, a 5.6% increase over 2011 [6]. This phenomenal
growth also created the need of more efficient managerial, organizational and planning
structures to best the increasing competition and deal with the many changing factors in
an also evolving market. Despite this growth, the outlook of future demand and the
resilience of the industry to the recent economic crisis, the empirical research on the
economic impact of cruise industry, remain thin [7].
The consumer profile targeted by cruise firms has changed over the years; Cruise is not a
“luxury product” anymore, targeting high net worth customers. The “new” consumer
profile targeted includes consumers of different economic status to be traveling together
Economic Evaluation of a Cruise Ship Dock Marine
25
in the same vessel [8].
Cruise industry has a significant economic impact witch diffuses throughout an economy
via an income multiplier effect [9]. The cruise is a multi-complex concept and combines a
large part of the so called tourism chain: transport, catering, provisioning, tourism,
entertainment and travel [23]. This business affects local, regional and national economy;
The main economic benefits can be summarized in [10]:
1) Supplies (fuel, lubricants, food, vessel spare parts)
2) Port Services (mooring, pilot rights, watering)
3) Local and State Taxes
4) Passenger and Crew spending
Additional income categories may include passenger’s baggage rights (transfer of
baggage from the cruise ship to special places off board), liquid or solid slop collection
and customs rights.
As far as the cruise market shares concerned, Caribbean stands at the top with a 50%
share in tourist flow and Europe (Mediterranean) follows with an approximately 20%.
The remaining 30% includes other destinations such as Alaska and Hawaii [11]. Despite
the fact that Caribbean tops in the market share list, it is considered a mature cruise
market, so the shipping companies seek for new destinations across Europe, targeting a
400 million potential customer base. Over 4.9 million European residents booked cruises
in 2009, an 11,5% increase over 2008, representing 29% of all cruise passengers
worldwide, compared with 22% ten years earlier [18]
A major change since the development of cruise industry in the 1970s is the average size
of the ships; from 20.000gt to 220.000gt four decades later, and from 800 passengers to
5.500 passengers. This increase in size demanded a new bundle of services added to the
cruise package which are promoted by the cruise companies, creating a “new destination”
in addition to regular itineraries. Multimillion investments into new and bigger cruise
ships, offer lower fares and shorter cruises, to benefit from economy of scale and onboard
activities. Modern cruising provides pure elements of integrated maritime tourism, since
beside the port-calls of tourist interest and the onboard activities it is also connected with
a series of off-board recreational activities.
On global scale, the cruise industry is controlled by few and large corporations which
hold 80% of the market share [6]. The volume of the cruise market is relatively small with
important barriers both to entry and exit, associated with the extremely high cost of
purchasing or selling a single cruise ship. Carnival Corporation is the undisputed leader in
the sector, followed by Royal Caribbean Cruises and Star Cruises Group. Although the
corporate administrative offices of major cruise companies are located in the United
States and Europe, their clients also come from the same areas. As far as the registration
of their fleet concerned, cruise ships are registered under Panama, Liberia, Bermuda and
Bahamas flags in order to obtain a series of benefits allowing a better economic balance
and competitiveness derived from more favorable standards concerning taxation, labor
laws, safety and environmental regulations [12]. Apart from this fact, cruise companies
contribute to the European economy: Over a period from 2010-2014, 31 cruise vessels
have been scheduled for delivery for worldwide trading with capacity for 70.820
passengers. Of these 12 ships with 26.600 berths (38%) are primarily for the European
source market, representing an investment of 5,1 billion euros [18]. This fact underlines
the industry’s commitment to the future of its business both in Europe and elsewhere in
the world. Two of the largest cruise ships to date, Oasis and Allure of the Seas, owned by
Royal Carribean, where built in Finland.
26
3
Spyros E. Polykalas and Spyros Troumpetas
Cruise in the Mediterranean Sea
The vast majority of cruise port calls in Europe are at the Mediterranean and Baltic ports.
The top ten destination countries accounted for 86% of cruise passenger visits in 2009;
the top four are in the Mediterranean [18].
The Mediterranean cruise market is part of a complex and dynamic environment. The
structure of the market and the regulatory framework are major factors structuring this
environment [13].
A major factor that affected key variables of Mediterranean Tourism was the geopolitical
events in the Mediterranean basin: Crises in countries like Tunisia, Morocco, Libya and
Egypt made the tourism organizations review their partnerships giving the opportunity for
Greece to increase its arrivals.
The largest cruise ship management companies have defined a map of the Mediterranean
cruise ports to central ports (circular cruise) such as Barcelona, Marseille, Rome and
Istanbul. These companies have supported their decisions by creating ship terminal
infrastructures.
An important element to be reported and plays an important role in the attendance of the
cruise is the economic stimulation of local markets. This is directly dependent on the
number of passengers disembarking at the port compared to the total passengers boarding
the ship. For example, the port of Piraeus landed 30% of total embarked and similar
figures are reported at the port of Santorini. Europe and the Mediterranean have a 7
million passenger market share on the global market [6]. This market is among the market
segments whereas social and economic trend contribute to the presence of a market
expansion potential [1].
4
Greece Cruise Industry
Greece is one of the most attractive destinations for development of maritime tourism
activities. Out of the Greek population, 33% lives in coastal cities or villages not more
than two kilometers from the coast [14]. Greece is ranked highly among the most popular
cruise destinations in the Mediterranean, due to the country’s geophysical characteristics
and an extensive island network (227 inhabited islands). Most of cruise programs that
include Greece as destination most frequently visit multiple Greek ports-Islands. The
prime domestic port is Pireaus. Cruising in Greece is provided by two types of vessels [1]:
• Large Ships departing from Piraeus or foreign ports, performing tours and calling at
national ports or those of neighboring countries and
• Smaller Ships departing from Greek Ports and call at in-between Greek ports during
the voyage and performing short voyages to domestic destinations most of the time.
The duration of stay for the cruisers at the Greek ports ranges from 5-6h to 10h or more.
The companies involved in cruising perform their programs from April to November
while during the winter period realize cruises off Greek waters. In 2009, Greece was the
leading destination with nearly 5 million cruise passengers with Santorini, Mykonos and
Rhodes being the leading island calls [18].
Economic Evaluation of a Cruise Ship Dock Marine
27
4.1 Cabotage
Cabotage is the restriction for carriage of cargo or passengers within a country by a vessel
registered in another country. This restriction is widely practiced, both by OECD
(Organization for Economic Co-operation and Development) and non-OECD members,
and is generally considered, but never demonstrated, to be crucial to ensure the
maintenance of domestic transport capability, as well as acting as an inhibitor to foreign
influence in domestic transport services. Therefore, liberalization of cabotage trades in
OECD member countries has not progressed to the same extent as liberalization in
international maritime trade [15].
In European Union the relevant legal framework for cabotage mainly consists of the EU
Council Regulation 3577/1992. This EU regulation grants freedom to provide maritime
transport services within a Member State (maritime cabotage) for Community ship
owners operating ships registered in a Member State and flying the flag of that Member
State, subject to these ships complying with all the conditions for carrying out cabotage
within that Member State. Maritime cabotage was liberalized on 1 January 1993. In the
case of France, Italy, Greece, Portugal and Spain mainland cabotage was gradually
liberalized according to a specific timetable for each type of transport service.
Mainland-island and inter-island cabotage for these countries was liberalized in 1999.
This exemption was prolonged until 2004 for scheduled passenger and lighter services
and services involving vessels of less than 650 gross tonnage in the case of Greece.
The national legal framework for cabotage consists mainly of the Law 3872/2012 as
amended by the Law 4072/2012. Article 222 of the new Law (4072/2012), among others,
fully liberalize the cruise services in Greece also for ships with flags outside the EU. In
particular article 222 removes the requirements of Law 3872/201 in relation to signing a
contract between the shipping company or the company operating the ship and the
relevant Ministry in Greece. It is expected that the new national framework, in relation to
cabotage removal, will bring the desired release in the cruise industry and has the
potential to result in revenue of 1.5 billion dollars a year.
5
Mooring Services in Greece
The establishment and operation of port and land services for cruise ships and leisure
crafts, constitute an essential infrastructure for the development of maritime tourism [1].
Today there are 19 marinas with 6661 docking berths in Greece that offer relevant
services. Quite a few of these marinas have been awarded through the European Blue Flag
Program. In recent years, the Greek National Tourist Organization and some of the 13
administrative regions of the country have started implementing a program for the
creation of an integrated network of anchoring and related services for vessels along the
Greek coasts. New modern marinas, hotel ports and moorings for the safe docking of
vessels are already functioning or are in the process of starting their operations, in order to
meet the needs of tourists arriving in Greece by sea in the most satisfactory way and
under the safest conditions.
As far as the port dues concerned, commercial harbors are supervised by local Port
Authorities. Ships that use the ports of the country are obliged to pay port dues, as
specified by the regulations of the competent Ministry of Mercantile Marine. Docking
dues are paid to the local Port Authorities (Port Fund) and are calculated on the basis of
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Spyros E. Polykalas and Spyros Troumpetas
craft category, total length of the craft in meters, registered total capacity in tons and
duration of stay in the port. This cost is lower than the corresponding one of the
Northwestern Mediterranean; the prices of the expensive Greek marinas are 20-40%
lower than the prices of marinas in the above region and 30% higher than the Turkish
ones [1].
6
Economic Evaluation of Argostoli Mooring Dock
The contribution of the cruise sector to national and local economy depends on the
expenditure realized by “producers and consumers” of the cruise product [11]. In order to
identify the channels that the output of the cruise business affects the economy, we should
distinguish whether the port under study is a “stopover port” or a “home port” [20].
Argostoli is a stopover port.
Accoding to Dwyer and Forsyth [10,21] (1998,2003), the economic impact is anticipated
to diverge in local and national level; at local level, cruise activity can be of major
importance, while, its contribution to GDP may be not be substantial.
As far as the Argostoli morring dock concerned, the construction works began on
December 19th, 2006; while the first cruise ships docked in summer 2009 although the
project was officially delivered in March 31th, 2011.
The project was financed by 75% by European Funding and 25% by National funding.
The original estimated project budget was 7.050.000€, while the final expenditure was
5.638.907 Euros of which 4.229.180€ derived by EU Funds and 1.409.727 by National
funds.
6.1 Introduction to DCF Model
Discounted Cash Flow (DCF) analysis is one of the most fundamental, commonly used
valuation methodologies. It is being developed and supported in academia and widely
used in applied business practices. DCF analysis uses future free cash flow projections
and discounts them (most often using the weighted average cost of capital - WACC) to
arrive at a present value, which is used to evaluate the potential for investment. If the
value arrived at through DCF analysis is higher than the current cost of the investment,
this investment is treated as advantageous. In the alternative approach, all present and
future incoming and outgoing flows are calculated and valued in present time. The
outcome, Net Present Value (NPV) must be above zero in order to characterize an
investment as beneficial. The latter approach has been used in this study and it is given
from the following formula:
n
NPV  
t 0
NCFt
(1  WACC ) t
Where:
NPV is the Net Present Value,
NCF is the present and projected Net Cash Flow for each season , t is the season and takes
values from 0 (present) to n (where n determines the period of evaluation) and
WACC stands for Weighted Average Cost of Capital and used as discount rate.
Economic Evaluation of a Cruise Ship Dock Marine
29
6.2 Variables Based on Actual Data
The input data for the DCF model used in this study were provided by the local offices of
Ionian Islands Region and local port authorities, since there is no single authority or
official database to focus specifically on the cruise sector.
The main key input variables for our model are the cruise ship’s arrivals and the number
of passengers; 90.808 passengers on board 61 ships for 2009, 82.893 passengers on board
64 ships for 2010 and 87.171 passengers onboard 56 ships for 2011. Local authorities also
provided the expected number of cruise ships for 2012 season as stated by shipping
companies: 100 cruise ships are expected, and around 190.00 passengers on board. This
suggests a remarkable 78% increase on arrivals over 2011.
The second input variable introduced into the model is the yearly average operational
costs and according to Local Port Authority (Hellenic Coast Guard) is estimated as
33.000€ per year, including security services (approx. 8000€), cleaning services (2000€),
lighting and water supply charges (11.000€), equipment maintenance (2.000€) and
brochure prints for passengers visiting the city (10.000€).
The next input variable is relevant to tax revenues divided into two main categories:
Taxes on docking and taxes per cruise passenger onboard. These taxes depend on the size
of the vessels (measured in gross tonnage (gt). According to local authorities the average
tax revenue is estimated around 600€ per ship mooring in dock. If a ship moors outside
the dock and passengers disembark at port using the cruise ship’s motorboats, no tax is
paid. The second type of tax is relevant to the number of passenger and is paid in all cases;
0,30€ per passenger whether the ship uses the dock or not. The 95% of this amount is paid
to Port’s Management Authority and 5% to Coast Guard.
The last input variable is related to evaluation period. Taking into account the lifetimes of
the components consist the mooring dock infrastructure we choose a period of twenty
(20) years for the economic evaluation. Cash flows are estimated using actual data and
averages for years 2009, 2010, 2011 based on the values of input variables contained in
this section, while for 2013-2028 periods the projections are based on the values of the
variables provided in the following section.
6.3 Variables Based on Projections – Assumptions
Weighted Average Cost of Capital (WACC) is the discount rate which cash flows are
discounted to obtain the NPV estimation.
Projections in Passengers per Cruise (PpC) per season are calculated based on the average
actual data of last 4 years. As regards the expected number of cruise ship arrivals per
season, we expect that the recent approved national legal framework in relation to
cabotage will increase the number of cruise ships arrived in Kefalonia compared to the
relevant actual number of the last three years. Therefore as starting point for the Average
Cruise Ships (ACS) parameter season, the number of cruise ships expected to arrive in
within 2012 season, is taken.
The yearly growth in operational costs of the mooring dock, used to estimate the yearly
cash flows, is determined at 0,50%. This percentage represents the expected annual
increase of operational expenditures during the period of evaluation, although the current
economic crisis in Greece may results to negative value for this parameter.
Τwo basic business model approaches are examined in relation to the NPV estimation.
The first one evaluates the investment taking into account the benefits for the Local
30
Spyros E. Polykalas and Spyros Troumpetas
Economy and the State (Local&State hereafter) while the second approach examines the
benefits only for the State. Accordingly the two basic formulas used to calculate cash
flows for each season from 2009 to 2029:
CFState& Local  ( DSR  ISR)  OPEX  TI  AI
CFState  DSR  OPEX  TI State  AI
Where:
CF is the yearly Cash Flow,
DSR is the Direct State Revenues,
ISR is Indirect State Revenues,
OPEX stands for Operational Expenses,
TI is Total Investment funding by the State and the EU (the initial implementation cost
spent in year 2009 only),
TIState is the part of Total Investment funding by the State and
AI represents the Additional Investments required for improvements, during the duration
of this evaluation. We have assumed that the AI value for each season is the 5% of the
relevant OPEX.
The Direct State Revenues calculations are based on the following formula:
DSR  [ ACS * MS * TDR]  [TpP * PpC ]  TP * IP (1)
Where:
ACS is the Average Cruise Ships per season as defined above,
MS is the percentage of Ships using the Mooring dock,
TDR are Taxes for Dock Revenue per cruise ship,
TpP are Taxes per passenger
TP are taxes as percentage to profit per destination passenger for local economy and
IP are Indirect Profit for local economy, after taxes, calculated by the following formula:
IP  ACS * APpP * DP * PpC
Where :
DP (Destination Passengers) is the percentage of cruise passengers on board which
disembarked in the port and
APpP is the Average Profit per Passenger and is estimated as a percentage of the direct
spending of DP to the local economy [17]..
6.4 Examined Scenarios
We examine four (4) groups of scenarios in relation to State and Local & State NPV
estimations.
In the first group of scenarios we examine the impact of selected parameters on NPV
(both for State and Local & State). In order to determine the most crucial parameters a
sensitivity analysis is performed. In each scenario only one parameter varies while the
others remain constant: The parameters altered are: ACS (Average number of Cruise
Ships), APpP (Average Profit per Passenger), WACC and DP (Destination Passengers
Percentage).
Economic Evaluation of a Cruise Ship Dock Marine
31
The second group of scenarios demonstrates the benefits for Local Economy and State in
four (4) year step. In this group of scenarios, NPV is calculated also in the case that no
mooring dock installed and the percentage of passengers disembarking the ship is lower
compared to the case of mooring dock installed.
The third group of scenarios provides a multiple parameters variation organized into the
following scenarios: Optimistic, Pessimistic and Best, with simultaneously variations in
yearly growth of arrivals, APpP and DP.
In the last group of scenarios, we examine a potential substitution query through an
intersection of NPV curves with and without the mooring dock presence in the port.
In each of the following graphs the vertical axis shows the variation of NPV in nominal
basis while horizontal axis shows the variation of examined parameter. In each graph the
NPV actual values have been normalized to the NPV’s real value of the first value of
the examined parameter. It should be mentioned here that our aim is to reveal the
sensitivity of each examined parameter to the NPV and not to determine the actual values
of the NPVs.
6.4.1 Group A – Determination of the most Crucial Parameters
In the first scenario, the yearly growth of ship arrivals varies from 1,0% to 1,7%. Both the
NPV for State & Local and the NPV for State economy change proportionally
suggesting an increase of around 7%,as shown in figure 1. The initial (the value
corresponds to 1% growth) NPV for State & Local economy is estimated around 10,9
millions €:
Figure 1: Variation of yearly cruise boats growth
Variation of yearly cruise boats growth
110%
108%
106%
NPV (State and Local
Economy)
104%
102%
NPV (State)
100%
98%
96%
1,0%
1,4%
1,7%
In the second scenario the average profit per destination passenger varies from 15€ to 20
and finally, 25€. The range of variation is based on the estimated passenger spending of
97,26 USD (74,50 EUR) [17] per port of call. The result is a significant growth in both
NPVs for State & Local Economy (+114,75%) and State only (+87,01%). In this case
NPV for Local & State, ranges from 100% of the original NPV estimation to almost
210%and NPV for State from 100% to 180%, as shown in Figure 2:
32
Spyros E. Polykalas and Spyros Troumpetas
Figure 2: Variation of Average revenue per destination passenger
250%
200%
150%
NPV (State and
Local Economy)
100%
NPV (State)
50%
0%
15 €
20 €
25 €
The third scenario examines the impact of WACC variation to NPVs. In both business
model scenarios (State, Local&State), no weighted average can be estimated due to
absence of equity cost. Cost of debt is the only participant to the average. Therefore in our
model three values of WACC are used, ranging from 4% to 7%. This range of WACC
values excludes the risk premium generated by Greece’s probability of default, IMF
Funding and other determinants. As a discount rate, an increase in value results lower
NPVs; in particular an increase from 4 to 7% results in a decrease of around 34% to NPV
(approximately 70% of the originally estimated NPV) (Local & State) and of 36% to
State NPV as displayed in Figure 3:
Figure 3: Variation of Weighted Average Cost of Capital
NPV (State and
Local Economy)
120.00%
100.00%
NPV (State)
80.00%
60.00%
40.00%
20.00%
.00%
4%
5%
7%
The last scenario examines the impact of destination passengers’ percentage variation in
NPV outcomes. An increase from 30% to 50% in the value of DP results an increase of
97,22% in NPV (Local & State) and 80,84% in NPV(State), more than 300% of the initial
NPV value. (Figure 4):
Economic Evaluation of a Cruise Ship Dock Marine
33
Figure 4: Variation of Destination Passengers (DP)
350%
NPV (State and
Local Economy)
300%
250%
NPV (State)
200%
150%
100%
50%
0%
30%
40%
50%
As shown in the previous figures the NPV is highly sensitive to Destination Passengers
value and the value of the Average Profit per cruise destination Passenger. In the
following figure are illustrated the results of a sensitivity analysis performed for the
scenarios presented in this section. (Figure 5):
Figure 5: Sensitivity Analysis
NPV max variation per parameter
Yearly growth of cruise boats
160%
Profit per cruise destination passenger
WACC
120%
Destination passengers
80%
40%
0%
State and Local Economy
State
-40%
-80%
6.4.2 Group B – Benefits for Local Economy and State
In this group of scenarios we present the revenues and profits for the period of the
evaluation with 4 years step.
Three NPVs are calculated in this case. The first one is with the mooring dock installed
(indicated “with mooring” in the relevant figure). Two additional NPV are examined on
the assumption that no mooring dock exists; the first assumes that with no mooring dock
in the port, only 55% of the number of cruise ships will arrived in the port compared to
ones with the mooring dock installed. The second recalculates the NPV using 65%
percentage in the number of cruise ships. In both scenarios is assumed that the percentage
of destination passengers will be 20% lower than in the case with the mooring dock
installed.
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Spyros E. Polykalas and Spyros Troumpetas
The Direct State Revenues, as defined in a previous section of this paper, is estimated
around 762.096€ for 2013-2016 period reaching 858.505€ for 2025-2028 period. The
used values for the model parameters in the case of the Scenario with mooring were: ACS
1%, MP 95%, TDR 600€, TpP =0,30€, PpC 1605 (actual data until 2012 and 1605 for
years after 2012), TP 20%, APpP 20€ and DPt 30%.
In the second and third scenario (55% of mooring and 65% of moring) has been assumed
that only the 55% or 65% of the cruise ships arrived in the scenario with mooring will
arrive in the port during each season respectively. In addition in both scenarios has been
assumed that the average number of destination passenger will be 20% lower compared to
the scenario with mooring. In the no mooring installed scenarios, no Operational
Expenses exist, nor Additional Investment for each year. Our results are displayed in
Figures 6 and 7:
Figure 6: Direct State Revenues (€)
1,000,000
800,000
with mooring
600,000
55% of
mooring
400,000
200,000
0
2013-2016
2017-2020
2021-2024
2025-2028
Figure 7: Profit for Local Economy (€)
with mooring
55% of
mooring
65% of
mooring
4,000,000
3,000,000
2,000,000
1,000,000
0
2013-2016
2017-2020
2021-2024
2025-2028
Economic Evaluation of a Cruise Ship Dock Marine
35
6.4.3 – Group C: Best, Optimistic and Pessimistic (BOP) scenarios analysis
In this group of scenarios we use the same fundamental techniques as sensitivity analysis.
The method attempts to take into consideration how certain variables of our model may
be interrelated. Instead of altering a single variable independently and observing the
change in NPV, we consider a scenario under which a number of related variables may
change, resulting in a collective change in NPV.
In the best (or actual) case scenario we assume there is no yearly growth in ship arrivals,
average profit per passenger (APpP) equals to 15€ and destination passengers (DP) are
30% of on board passengers. This modifications result a NPV 800% larger than the initaly
estimated for Local & 250% for State economy only. In the optimistic case scenario we
assume that annual growth in ship arrivals is +1%, average profit per passenger (APpP)
equals to 20€ and destination passengers (DP) are 40% of onboard passengers. This
modifications result a NPV approximately more than 2250% compared to the initially
estimated NPV for Local & State economy and approximately 600% for State economy
only.
Finally in the worst case scenario, we calculate a decrease of 1% in ship arrivals is, an
average profit per passenger (APpP) equal to 10€ and destination passengers (DP) as 25%
of onboard passengers. This modifications result a net present value slightly larger than
the initially estimated NPV for Local & State economy and for State economy only. In all
cases NPV estimations remain larger than the NPV calculated without use of alternative
scenarios.
The constant variables were the average number of passengers on board (1605), WACC
value (4%), taxes as percentage to profit per destination passenger TPlocal calculated at
20%, OPEX yearly growth (0,5%) and Additional Investments (AI) at 5% of OPEX with
1% yearly growth rate. The above NPV results are provided in Figure 8:
Figure 8: BOP Scenarios Results
2500%
2000%
NPV (State and
Local Economy)
NPV (State)
1500%
1000%
500%
0%
Pess
Best
Opt
In all three scenarios significant gains are observed for Local & State economy; even in
the worst case scenarios NPV remains constantly positive.
36
Spyros E. Polykalas and Spyros Troumpetas
6.4.4 Group D: Economic Substitutability of the mooring dock
In this group of scenarios we are trying to explore under which conditions the mooring
dock is “unnecessary” in terms of economic substitutability, using the following
assumptions: in the scenario of no mooring dock is installed we assume that the port
will be less attractive for cruise ships and therefore the number of ships arriving at port
will be a percentage of the ships arriving with the dock installed. Several percentages are
used to determine the intersection between NPV for Local and NPV for Local & State
economy
At first we calculate the NPV of the mooring dock using the following data and
assumptions: yearly growth of +1% in ship arrivals, an average profit per passenger
(APpP) equal to 20€, destination passengers (DP) as 20% of on board passengers.
Average number of cruise passengers defined as 1605. This set of input parameters
result a NPV of 1,305.million € for State economy. The following step is to calculate
the NPV(State) without the mooring dock; the same assumptions are made compared to
the previous case except Average Cruise Ships per year and the DP: without the mooring
dock the ACS input is reduced at 65, 75, 85% percentage of ACS with the dock installed,
while the DP is decreased by 20% compared to the case of mooring installation. As
depicted in the following figure the 85% percentage scenario, the NPV for state economy.
is 130% compared to the initially estimated NPV as shown in the Figure 9:
Figure 9: Substitutability through NPV Results
140%
120%
100%
80%
with mooring
60%
without mooring
40%
20%
0%
65% of mooring
75% of mooring
85% of mooring
In other words we conclude that the mooring dock could be assumed as unnecessary for
the State Economy only if the average cruise ship number (ACS) is 85% or higher than
the number achieved with the mooring dock.
The relevant percentage in the case of Local & State NPV is 65% of the average number
of cruise ship arrivals using the same assumptions and input data with the previous case.
(Figure 10):
Economic Evaluation of a Cruise Ship Dock Marine
37
Figure 10: Substitutability through NPVs for Local and State Economy
NPN for State and Local Economy
140%
120%
100%
80%
with mooring
60%
without mooring
40%
20%
0%
65% of mooring
7
75% of mooring
85% of mooring
Conclusion
The cruise industry has the potential to provide multiple economic benefits to local
economies. However, accommodation of large cruise ships into port requires a great deal
of initial capital investment in infrastructure as well as maintenance costs.
The primary aim of this analysis was to investigate the way and the degree in which the
cruise activity can contribute to the national economy and even more to the local
economy.
The impact of mooring dock in Argostoli was examined and the main conclusion is that it
provides substantial benefits for local economies and state revenues. In all scenarios and
cases examined the Net Present Value of the investment remained constantly positive
both on Local and State & Local business model. This benefit is not limited to State
revenues only: it creates a dynamic development potential with multiple externalities
which contribute significantly although they cannot easily be measured and aggregated
into a single evaluation techno-economic model. Considering all the available data, the
mooring dock gives a competitive tourist advantage in Kefalonia; Cruise ship industry has
the ability to establish effective relations with the land based tourism industry and local
communities. These benefits remain at the discretion of local and national administrations
to exploit the possibilities unfold. Apart from the economic impacts that a national and a
local economy profits, cruise activity creates social and environmental impacts as well,
such as modifications of the natural environment, certain types of pollution [11].
Although, data concering the environmental impacts is poor and limited to estimations
[19].
As cruise ships continue to grow larger and increase in numbers, further investment may
be required. A future work could re-evaluate the potential impacts and investigate whether
a second mooring dock in Kefalonia could be a reasonable and profitable investment.
38
Spyros E. Polykalas and Spyros Troumpetas
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